California Supreme Court allows redevelopment money grab

A state Supreme Court ruling Thursday wiped out the existence of redevelopment agencies, leaving local governments across California in an unenviable game of "Biggest Loser."

Santa Clara city officials are looking at a $40 million hole in their share of the San Francisco 49ers stadium project, with no Plan B in place. Oakland's hopes to build a new baseball stadium near Jack London Square to keep the Oakland A's from moving to San Jose appear doomed. Downtown upgrades in Sunnyvale, affordable housing in San Mateo, a regional theater in Livermore, a shopping center in Pleasant Hill -- all are now in the redevelopment rubble.

California's high court concluded the Legislature had the authority earlier this year to raid redevelopment funding to plug a hole in the state's budget, rejecting arguments from redevelopment advocates that the budget gambit violated voter-approved Proposition 22, a 2010 measure designed to bar the state from seizing local funding to pay its bills. The budget maneuver will divert more than $1 billion into the state's coffers, a key component in Gov. Jerry Brown's effort to solve California's chronic deficits.

The justices, however, struck down a separate state law approved as part of the legislative package that would have allowed redevelopment agencies to stay afloat if they agreed to relinquish a large share of their funding to the state to pay for schools. Most redevelopment agencies had planned to take advantage of that safety net to survive, although San Jose warned it could not afford the option.

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Dealt a death blow in the courts, local governments now plan to urge the Legislature to salvage redevelopment agencies. But given that any such effort would need backing from a governor who has soured on redevelopment taking money from schools, counties and state services, saving the state's nearly 400 agencies from extinction may be a long shot.

And most redevelopment experts agree there is no local solution, given that cash-strapped cities and counties do not have a pot of money comparable to the property taxes that had poured into redevelopment coffers to pay for urban renewal, affordable housing and other projects.

Legislative leaders were cautious Thursday about what may unfold next for redevelopment. Assembly Speaker John Perez, D-Los Angeles, conceded the ruling was a "mixed result," and state Senate President Pro Tem Darrell Steinberg, D-Sacramento, said "all viable options" for local economic development should be explored.

"There's lots of play in the joints for the Legislature to act," said Steve Mayer, the lawyer for the California Redevelopment Association. "This result is not what the Legislature intended."

In the ruling written by Justice Kathryn Mickle Werdegar, the Supreme Court concluded the Legislature had a right to dissolve redevelopment agencies because it created them more than six decades ago. But the court did find Proposition 22 trumped the ability of the state to enact the second law forcing redevelopment agencies to essentially pay the state to survive.

Chief Justice Tani Cantil-Sakauye dissented from that part of the ruling, saying the Legislature had a clear intent to keep redevelopment agencies in business.

For the governor and state lawmakers, the ruling was crucial because they otherwise would be scrambling to find ways to fill a $1.7 billion gap in funding for the current budget. The ruling comes in time for a Jan. 15 deadline, when half of the redevelopment money is slated to be turned over to the state for the 2011-12 fiscal year.

Redevelopment advocates say the state may not get as much money as it hoped if the redevelopment agencies are abolished altogether, estimating California could lose as much as $600 million this year alone. But H.D. Palmer, spokesman for the state Department of Finance, said the state overall will fare well because so much property tax money will be diverted to schools that otherwise would go to redevelopment agencies.

The decision is about the worst outcome possible for the agencies, which sued to block the state's redevelopment raid. San Jose and Union City joined the statewide redevelopment association in the lawsuit.

In San Jose, the demise of redevelopment is not expected to impact two of the city's most important projects, including the effort to lure the A's, which does not depend on redevelopment money. But the ruling does spell the death knell for a once powerful agency that backed such projects as the HP Pavilion and Tech Museum. San Jose Mayor Chuck Reed called the ruling a blow to "job creation efforts in San Jose at the worst possible time."

Other city leaders across the Bay Area were scrambling to determine the impact. In Santa Clara, city officials now must find up to $40 million in redevelopment money pledged toward the 49ers proposed $1 billion stadium, although city leaders have insisted it would not jeopardize the project.

Some local governments, anticipating the end of redevelopment agencies, moved quickly earlier this year to finalize projects in order to shield money from any state raid. Santa Cruz County, for example, approved $75 million in projects, including a new $44 million public safety center, to keep the money out of the state's clutches.

But barring a lifeline from the Legislature, even such well-positioned agencies will phase out. Redevelopment advocates, however, say they had no choice but to sue over the issue, rejecting the suggestion they may have avoided the most devastating result by staying out of the Supreme Court.

"I don't have any regrets in hindsight," San Jose City Attorney Rick Doyle said. "The state's whole scheme was illegal."